As the U.K. began negotiating its so-called Brexit from the European Union on Monday, Germany's startup ecosystem got a major nod in the form of one of the year's most anticipated IPOs, from Delivery Hero.
The Berlin-based food-delivery service, with operations in more than 40 countries, announced plans for a public listing on the Frankfurt stock exchange. The company says it aims to raise roughly one billion euros ($1.1 billion) in the IPO, which would give it a valuation of 4.4 billion euros ($4.9 billion). Large though that figure may seem, analysts say it's within investor expectations: Delivery Hero, which brokers deliveries from a network of restaurants or brings the food to customers' homes via courier, was most recently valued at between 3.5 billion euros ($3.9 billion) and 4 billion euros ($4.1 billion), when it raised funding from Naspers, a South African e-commerce company. It works with about 150,000 restaurants today, and counts more than 6,000 employees globally, as it competes with local players such as Takeaway.com, based in the Netherlands, as well as giants like Amazon and Uber.
Of course, Berlin has long attracted artists and technologists from around the world. It's lost favor as a startup hub, though, since it hasn't counted many large exits. When, at the end of the month, Delivery Hero lists its shares--for around 22 to 25 euros (or $24.50 to $27.80) apiece--that perception is likely to change.
Already, many E.U. entrepreneurs have told Inc. that they believe Berlin will become Europe's business capital once London finalizes its departure. In a recent Inc. 5000 survey, more than a quarter (26 percent) of E.U. business owners said they thought that Berlin would emerge as the new center of business for Europe, while others pointed to Frankfurt, a nearby financial hub.
Either way, Germany--not the U.K.--winds up on top. Just two respondents thought that London would retain its top status, while around half (54 percent) of those surveyed said they didn't believe there would be any single business center.
Low cost, high reward
There are a number of factors that make Berlin an attractive location to start a company. Known for its low cost of living--at least relative to San Francisco, New York City, and London--the city offers inexpensive access to skilled labor and easy access to the European Union. Additionally, many American tech companies already have offices in Berlin, including Facebook and Airbnb, while incubator programs are fast breeding the next generation of German startups. These include N26, a financial technology firm, as well as EyeEm, an artificial intelligence startup that trains computers to identify photography for publishers. (Both are backed by Peter Thiel's investment arm, Valar Ventures.)
In total, the city is home to 2,500 active startups, which have lured a total of 2.4 billion euros ($2.7 billion) in venture capital, according to Ernst & Young. That's more than the total attracted by startups in London, Paris, or Stockholm, though only around 9 percent of what Silicon Valley companies can boast.
Still, there are barriers to entry that entrepreneurs face in Germany. The talent pool of Berlin is significantly smaller than that of London, for instance. And given the relative dearth in exits, the city does lack the kind of alumni network that can be found in the U.S. and the U.K. Analysts argue that Berlin needs more entrepreneurs to either take their startups public or sell them for a hefty sum, so that those players can reinvest in German startups.
Delivery Hero's co-founder and CEO, Niklas Ostberg, could be one such player. And while the business--which runs affiliated sites including Yemeksepeti, Foodora, and Foodpanda--may not be the next Uber, per se, it's certainly nothing to sneeze at. The company reported 297 million euros ($331 million) in sales last year, up 79 percent from 2015. "Going public and listing our shares on the stock market will further enable us to develop the company and provide us with additional capital to expand our leadership positions in the online food ordering and delivery market," Ostberg said in a statement Monday.